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What are the two methods to determine how much life insurance you require, briefly explain?

What are the two methods to determine how much life insurance you require, briefly explain?

Solutions

Expert Solution

Multiple of income Approach

This approach also know as easy method or simple method.In this method ,you need to multiply your annual gross income by 70% and then multiply the result by 7. This will give you 7 years of income at 70%.

For example, if your gross income is $100,000, then with the easy method, your life insurance requirement is ($100,000 * 0.7) * 7 = $419, 000.

This method is useful where both spouses work, are in good health, with average debt.


Needs-Based Approach

In this approach the calculation is done on the basis of day-to-day family expenses till the life expectancy of youngest member in the family. The major factors to consider for assessment are number of dependents and their needs,
Loans, children education and marriage Provision for non-working spouse and what Kind of lifestyle you want to provide your family
Once all the above expenses are summed up, the figure you arrive at is what the family needs today, considering that you will die today. Then deduct the life insurance policy you already had and all your assets. This new figure is the gap that you need to bridge.


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